Fixing the Right Economic Problems

By
Ruth Walker, Ruth Walker is the deputy editor of the Monitor. /
December 18, 1991

IT'S bad enough that the United States is in a recession. It's worse that the downturn is coming at a time when the country would wish to demonstrate better the strength of the American political and economic system, especially given the upheaval in the emergent Eurasian commonwealth rising from the ruins of the former Soviet Union.How, one wonders, did a United States drained from the effort of World War II ever manage to fund the Marshall Plan? Yet it would be wrong to sell the United States short. There are reasons why in times of real crisis, the US dollar is the currency that goes up. And throughout the period of hundreds of millions of dollars of federal budget deficits, people the world over voted with their investment funds for the American way - they let the US finance its deficit by borrowing on world markets. The deficits haven't been a good thing, but the resort to foreign investors showed how the United States can turn its political soundness into a literally bankable asset. Much needs attention in the economy, though. As the news columns of the Monitor have been making clear in recent days, the current cyclical downturn needs to be distinguished from the larger structural adjustment. When the Fortune 500 giants start shrinking by their tens of thousands, it's a structural shift. One of the dangers we face is that we might take steps to solve the short-term problem (by giving the affluent another tax cut for instance) that would interfere with addressing the larger problems: lower-than-desirable productivity growth rates, high personal and corporate debt, insufficient investment in infrastructure, and so on. The pressures of the moment may lead to an undoing of the federal budget deficit deal, too, and that would do nothing for the public's confidence in Washington's ability to discipline itself or stick with a bargain. For years, economists have railed about consumers needing to save more, to cut back their level of debt. Now there is evidence that they are doing so, and the economists and government policymakers are complaining that the economy is languishing because of tight-fisted consumers, whose spending, after all, makes up two-thirds of the economy. Consumers should have more confidence in the economy, they are told. Everyone has caught the irony, we hope. President Bush's sweat-sock-shopping trip may return to haunt him. Meanwhile, the human capital issue has to be faced. Much has been made of the numbers of white-collar workers, professionals, and middle managers being laid off in the current tough period. But more than 50 percent of the jobless have no more than a high school education, and that diploma means less than it did a few decades ago. There are millions whose capacity to produce within the economy is wildly out of sync with their requirements for consumption to live happily in it. And the brightest young Amer icans need to face up to the fact that by many measures, they simply aren't achieving as they once did, aren't reading as many serious books in a semester, aren't coming to their "selective" colleges with abundant writing experience. One is tempted to blame politics for all this inability to see the larger picture, but that may be unfair. Politics is the energy that moves policy goals up and down the field. Every four years, the out party in American politics has to reinvent what it stands for, in a way that its European counterparts, with their tidier systems of clearly designated leaders, shadow cabinets, and party discipline, do not have to do. In this case, the situation is further complicated because the president's own party isn't completely sure where it stands, either. Note that the clearest part of the Bush "vision," the North American Free Trade Agreement, is opposed by both isolationist conservative Republicans Pat Buchanan and David Duke and unapologetic protectionist liberal Sen. Tom Harkin (D) of Iowa. The upside of all this policy muddle is that there is ample room for common sense, for sound investment in that which will create wealth, in education, in infrastructure. Then Americans will have confidence in the economy - and their confidence will be justified.